Friday, September 28. 2012

With Candide, Voltaire trook several hundred pages to satirise the silliness of unthinking optimism. Gillian Tett took a few hundred words in the FT. She was a young and enthusiastic Euro-optimist, her father was a grizzled Euro-cynic. Here is her apology:

...what is also clear is that my father was entirely correct to be cynical in the face of my optimism. So the question I keep asking myself today is, why did so many people (like me) get swept along by the hype – while others (like my Dad) did not? Why was his cynicism a minority view, in a sea of hope?

One easy explanation, perhaps, might be our relative ages. By the time we had our argument in Val d’Isère, my father was 58 and had lived through numerous economic cycles. I had only worked as an economic journalist for a few years. I had never stared a recession deep enough in the face to become truly wary, rather like those young mortgage traders who stoked up the subprime boom a decade ago.

Then there was the nature of my father’s career. Although he was a brilliant student of economics in the US and UK, he did not go to work in the City or on Wall Street; instead, he headed for the distinctly unglamorous world of British manufacturing, working mostly in midsized companies. So instead of worrying about complex financial products or public policy rhetoric, my father has spent his life thinking about making widgets, such as fire detection equipment.

In that earthy world, there is little place for punditry or wishful thinking: either your sums (and widgets) add up, or they do not. Stock rooms cannot be conjured up by rhetoric alone. Little wonder, then, that my father considered it madness to run a single monetary policy without free labour flows or fiscal union. If the eurozone was a business plan, in his eyes it simply did not add up.

There was also a more subtle factor. Precisely because my father worked in the (then relatively unfashionable) manufacturing world, he was less subsumed by fashionable policy group-think. By 1996, as the financier George Soros says (quoting the psychoanalyst David Tuckett), the euro had become a “fantastic object”: it was unreal but immensely attractive. Or to put it another way, political idealism had subsumed economic gravity. My father, outside the intellectual echo chamber of the eurozone elite, was never infected by the hype.

This sort of explains my complaint from 2006/7, when it was plain that there was a huge problem coming, and nary a peep from the Financial journalism community. I thought they were in the pocket of the Financial industry (as the regulators were), but being mainly "teenage scribblers" (as an earlier Chancellor asserted) who had never seen anything like it is alao a reasonable analysis. But teh real question is "what are the lessons" to avoid unwarranted optimism?

So what are the lessons? One is that it shows the value of retaining older people – or at least, a diversity of life experience – in the workforce. If nothing else, a range of ages helps guard against group-think. Another moral is that it shows the value of having some people from “real” businesses sitting in the corridors of power: handling widgets or running small companies is a good reality check. But perhaps the biggest lesson of all, which journalists, financiers and politicians should all have posted up on their desks, is how wrong we can sometimes be, especially when we are excited by a “cause”.

These lessons are as valid for Technology as Finance, of course - which is why I wrote about it. So if I may abstract, here are...
The 5 Lessons to Guard Against Irrational Optimism.

Run for the hills if:

1. If the issue is a "cause" with a "belief system" rather than based on any hard data
2. If the believers are all young and idealistic, and saying "this time it will be different"
3. If Old Fogeys who have been there before start to get sceptical about it
4. If the numbers don't add up without "heroic" assumptions, and requires everything to go right at all times
5. If the people calling for the New New Thing have never run a business in their lives.

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